Student Loan Repayment May 2025: Who Pays When?

I feel as though we are all very panicked about having to rethink our Spending Plans to accommodate student loan payments.

Navigating this whole student loan landscape can feel like trying to solve a Rubik's Cube blindfolded, right? Let me clear a few things up.

I've been digging into the latest updates, and it turns out that not everyone needs to panic about a payment hitting their account on May 5th. That date is actually significant for a specific group of people: those who have federal student loans that are already in default.

Feeling overwhelmed by student loan debt?

If your federal student loans have unfortunately landed in default, the Department of Education is gearing up to restart those involuntary collection actions starting on Monday, May 5th, 2025. This means things like having your tax refunds held back, a chunk of your federal paycheck disappearing, or even seeing a portion of your Social Security benefits go towards your loan.

If this is you, the good news (if you can call it that) is that the Department of Education is planning to reach out over the next couple of weeks. Keep an eye on your email inbox! They'll be urging you to get in touch with their Default Resolution Group. Seriously, if you get one of these emails, take a deep breath and reach out. They can walk you through options like exploring income-driven repayment (IDR) plans that could make payments more manageable, or even looking into loan rehabilitation programs to get your loans out of default.

But what about the rest of us who are not in default? Well, the picture is a little different. Remember all the talk about the new SAVE (Saving on a Valuable Education) Plan and other income-driven repayment options? It's all a bit tangled up in some legal stuff right now. Which is sort of good news right now.

Because of these ongoing legal challenges, the Department of Education is saying that loan servicers probably won't be able to accurately figure out those monthly payments under the SAVE formula until at least September 2025 and we probably won't see our first payments due until December 2025 at the earliest.

For many of us with federal student loans that are not in default, we're actually in a kind of general forbearance right now because of all this SAVE plan stuff. That buys us a little more time to plan and prepare.

A small caveat...

The big pause on all federal student loan payments ended in October 2023. Before that, during the pandemic relief, most people didn't have to make payments, and interest wasn't piling up.

However,

• Interest is Back: Starting September 1, 2023, interest began accruing again on federal student loans for everyone, even if they weren't required to make payments at that time and even if they are in the current SAVE-related forbearance. So, even if your payments are paused right now due to the SAVE situation, your loan balance could still be growing because of accumulating interest.

• Not Everyone is in the SAVE Forbearance: The forbearance (the current pause on payments for many) is specifically tied to the difficulties in implementing the SAVE plan. If you haven't enrolled in the SAVE plan, or if you're not in some other type of approved forbearance, then you were expected to resume making payments after the general payment pause ended in October 2023.

• Consequences of Not Paying (If You Should Be): If you fall into the group who should be making payments (because you're not in the SAVE forbearance or another approved forbearance), and you're not paying, your loans will become delinquent. Delinquency is the first step towards default and can have some serious negative consequences, the biggest one being a ding to your credit score.

So, the key takeaway here is to understand your individual situation. While May 5th is a critical date for those in default, many others have a bit more time before payments restart due to the SAVE plan complexities. However, don't forget that interest is likely accruing, and if you're not in an approved forbearance, payments are expected.

Keep an eye on official communications from the Department of Education and your loan servicer for the most accurate information specific to your loans. We'll get through this!